Spinoff or spin? Just follow the Westfield money

Columnist

Deals that preceded the one that is in limbo showed where the Lowy family's main interest lay. Photo: Brendon Thorne

In the now-ancient movie All the President's Men, journalist Bob Woodward is advised by his mysterious source, Deep Throat, to ''follow the money''. The trail led to the White House's Oval Office and Richard Nixon.

Following the money is a useful way to analyse this week's Westfield standoff, too. Westfield founder Frank Lowy is being accused of heavy-handed tactics, but it was always the case that he and his family had a lopsided interest in the $70 billion rearrangement of Westfield that is now in limbo.

Lowy built Westfield brick by brick and it has two listed corporate faces, Westfield Group and Westfield Retail Trust (WRT).

WRT was created in 2010. It is Westfield Group's shopping mall joint venture partner in Australia and New Zealand but a subordinate one: the assets are managed and developed by Westfield Group.

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The restructure that is in limbo after Thursday's extraordinary mid-stream adjournment of a WRT meeting would see the jointly owned Australian and New Zealand shopping centres consolidated in a new company, Scentre Group, which would also acquire Westfield group's property management and development rights.

Westfield Group would own and operate the international empire that the Lowy family has created - 39 shopping centres in the United States and five in the United Kingdom and Europe. As in Australia the Lowy family has used a joint ownership structure overseas. Its US, UK and European shopping centres are all jointly owned with partners, institutional investors including pensions funds primarily.

Deals that preceded the one that is in limbo showed where the Lowy family's main interest lay, however.

At the end of February last year the family sold the 7 per cent stake in WRT they picked up on WRT's creation in 2010, offloading 214.8 million stapled securities for $664 million.

That left it with an 8 per cent stake in Westfield Group. The share sale was ''part of a broader investment strategy to diversify its investments internationally'', a spokesman said at the time and the latest restructure should always have been seen in that context.

The family hasn't lost faith in the Australian market but sees more growth overseas. The group it invests directly in, Westfield Group, has been selling, buying and developing new centres to reduce the number of shopping centres in its portfolio but also raise their quality and earnings potential.

In the lead-up to Thursday's events it became clear that a group of institutional investors in WRT were unhappy about the terms of the restructuring. (Support for the deal from Westfield Group's shareholders was solid from the outset.)

Westfield sweetened the terms by $300 million this month but by last Tuesday's deadline for proxies a block led by 8.5 per cent shareholder UniSuper was still opposed.

At both WRT and Westfield Group the restructuring needed to be approved by 75 per cent majorities. Not all shareholders vote, however, and that magnifies the voting power of those that do. If three-quarters of the shares on issue are voted, for example, the holders of 19 per cent of the company can defeat a motion that requires a 75 per cent majority.

As Thursday's meetings approached defeat it began to look increasingly likely that this would happen at the WRT meeting. What is less clear, however, is how many of the shareholders in the ginger group were implacably opposed.

Documents sent to WRT investors stated that a variety of scenarios were possible if WRT investors rejected the restructure when they met.

One scenario was that Westfield Group would press on and sell its half-share of the local shopping centres into Scentre. Another was that Westfield Group would negotiate new terms with WRT.

Institutions including UniSuper knew that Westfield Group might go solo. The possibility was canvassed in talks with major institutions, sources say.

However, they would have believed that a renegotiation was also possible and some may have believed that threatening to vote against the restructure was part of an arm wrestle that would probably result in the terms of the deal being sweetened.

Lowy's announcement at the Westfield Group meeting on Thursday morning that the Westfield board had met on Tuesday and Wednesday and decided to do a solo restructure if WRT voted down the full-blown restructure was therefore probably a shock for some and old news for others.

But if it was a shock, it probably shouldn't have been. WRT chairman Dick Warburton's call was that Lowy's announcement was material new information and that the meeting should be adjourned to give security holders time to consider it but Lowy's statement reflected the underlying reality.

The Lowys are looking. They have commercial reasons and the overseas arm might also eventually take US residency. If it did and Delaware were the US state chosen, the family could build its defences against any unwanted takeover, as Rupert Murdoch's News Corp did after making the same move.

WRT might still vote in favour when its meeting reconvenes, of course. The yes vote was at 74.1 per cent, just short of the 75 per cent hurdle, close enough to go either way when all the votes are finally counted.